The central government is considering deregulating prices of
processed oil amid record high global crude prices, a senior
economic official said yesterday in Beijing.
Industry analysts say once controls are lifted, China's oil
prices, which are currently much lower than international levels,
will increase markedly.
"The market should be the guide in a pricing system, but at the
same time, the government should be the regulator," said Zhu
Hongren, deputy director of the Economic Operation Bureau of the
National Development and Reform Commission, at a press conference
in Beijing yesterday.
But Zhu said he did not know when the new pricing mechanism
would be announced by the State Council, China's central
government.
China has taken gradual steps to decentralize crude and
processed oil prices, which were fully under government control
before 1998. Since then, the government has allowed domestic crude
oil prices to move with the global market.
However, refined oil prices remain detached.
Oil prices have rocketed since 2003, with crude oil reaching
more than US$60 per barrel on the international market this year,
far higher than the price paid for the commodity by domestic users.
Prior to the price hikes nationwide, the retail price of
domestically processed oil was only about US$43 per barrel.
The government-dominated pricing system has prevented price
fluctuations of many daily necessities and products, but the
mainland's oil refineries have born the financial brunt.
PetroChina, the nation's biggest oil company, said in Beijing
that it lost 19.8 billion yuan (US$2.4 billion) on refining and
fuel sales in 2005.
"At the same time, we have to reform the pricing system because
of China's commitment to the World Trade Organization," said a
researcher with the Energy Research Institute under the National
Development and Reform Commission .
China has promised to open its oil refining market to foreign
investors by the end of 2006. "Therefore decentralized prices and
improved competitiveness of domestic refineries are essential,"
said the researcher, on the condition of anonymity.
But he said the new pricing mechanism would not be announced in
the near future, despite the fact that oil prices jumped past US$75
a barrel on Friday on the New York Mercantile Exchange.
"We adjusted prices last month and maybe some disadvantaged
groups are still feeling the impact, with government subsidies yet
to materialize," said the researcher.
At the end of last month, the commission decided to increase
ex-factory petrol prices by 300 yuan (US$37.5) per ton and the cost
of diesel by 200 yuan (US$24.9) per ton.
Retail prices for petrol have also gone up by 250 yuan (US$30.8)
per ton, while diesel prices were increased by 150 yuan (US$18.5) a
ton.
To offset the impact of the rises on sensitive groups, the
commission said the State Council has decided to offer subsidies to
communities such as fishermen, farmers, State-owned forestry
enterprises and urban public transportation firms.
(China Daily April 25, 2006)